Costco loses state case on lowering beer, wine prices

Too early to decide whether company will appeal

By CRAIG HARRIS, P-I REPORTER

Published
10:00 pm PST, Tuesday, January 29, 2008

Costco Chief Executive Jim Sinegal, center, told shareholders Tuesday at the company's annual meeting that the company is not "particularly happy" with a court ruling on the state's liquor control laws. Separately, he announced that Costco plans to nearly double in size to 1,025 warehouses. less

Costco Chief Executive Jim Sinegal, center, told shareholders Tuesday at the company's annual meeting that the company is not "particularly happy" with a court ruling on the state's liquor control laws. ... more

Photo: Grant M. Haller/Seattle Post-Intelligencer

Photo: Grant M. Haller/Seattle Post-Intelligencer

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Costco Chief Executive Jim Sinegal, center, told shareholders Tuesday at the company's annual meeting that the company is not "particularly happy" with a court ruling on the state's liquor control laws. Separately, he announced that Costco plans to nearly double in size to 1,025 warehouses. less

Costco Chief Executive Jim Sinegal, center, told shareholders Tuesday at the company's annual meeting that the company is not "particularly happy" with a court ruling on the state's liquor control laws. ... more

Photo: Grant M. Haller/Seattle Post-Intelligencer

Costco loses state case on lowering beer, wine prices

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A federal appeals court Tuesday dealt Costco Wholesale Corp. a setback on whether the warehouse club operator could lower prices of beer and wine for its customers.

"We are pleased with the 9th Circuit's decision to uphold most of Washington's liquor control laws," Attorney General Rob McKenna said. "The decision means the Legislature will continue to make any necessary policy changes to the distribution of beer and wine in our state."

However, Judge Diarmuid O'Scannlain, writing for the three-judge panel, ruled in Costco's favor that one of the state's key enforcement tools, called a post-and-hold requirement, violated federal antitrust laws.

Costco Chief Executive Jim Sinegal said it was too early to decide whether the Issaquah-based company would appeal.

"We will study it. The quick read is we won some points and they won some points," Sinegal said in an interview before the company's annual meeting in Bellevue. "We have to really take a look at it."

During the shareholder meeting, when asked about the issue by an investor, Sinegal said: "We are not particularly happy with the result. We don't think the 9th Circuit was as thoughtful at protecting the consumer."

The ruling was widely watched outside of Washington, with at least 30 other states and jurisdictions filing briefs in support of Washington.

The state had said if Costco, the country's fourth-largest retailer with 389 U.S. stores, had won, it could put into question the systems other states use to control alcohol consumption and safeguard the collection of taxes.

The appeals court also said the state could ban retailers from using credit to make beer and wine purchases from distributors and that retailers could not sell to other retailers.

"It's a very good result for the state," said Martha Lantz, an assistant attorney general. "It recognizes the state's ability to make policy choices regarding beer and wine distribution. ... Costco won on post and hold; the state won on every other issue."

Post and hold requires every beer or wine distributor to file with the Liquor Control Board its wholesale prices and then maintain those prices for at least 30 days.

Without the enforcement tool, the state could have difficulty upholding other regulations, and that could "lay the groundwork for the Legislature to reconsider all the other restraints the court left in place," said David Burman, an attorney for Costco.

Brian Smith, a spokesman for the state Liquor Control Board, said it wasn't clear what the state would do if "post and hold" can't be used.

"Post and hold is not enforcement, it's the mechanism how we currently know if suppliers and manufacturers are selling at the price that's listed. There are other ways to do that, and it will have to be unraveled."

Smith declined to elaborate on what other mechanisms could be used.

Costco, a membership club with 53.8 million cardholders, sued the state in February 2004, alleging the Liquor Control Board's restrictions kept the company from using its buying power to offer beer and wine at low prices for its customers.